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United States General Accounting Office:
GAO:
Report to Congressional Subcommittees:
August 2002:
Results-Oriented Cultures:
Insights for U.S. Agencies from Other Countries’ Performance Management
Initiatives:
GAO-02-862:
GAO Highlights:
Highlights of GAO-02-862, a report to Subcommittees on International
Security, Proliferation, and Federal Service and on Oversight of
Government Management, Restructuring, and the District of Columbia,
Senate Committee on Governmental Affairs.
Why GAO Did This Study:
Strategic human capital management is a high-risk area that threatens
the federal government’s ability to effectively serve Americans. An
essential element to developing and managing the human capital needed
to achieve organizational results is the link between individual
performance and organizational goals. Performance management systems
provide one way to make this link. Governments and agencies in
Australia, Canada, New Zealand, and the United Kingdom have used their
performance management systems to connect employee performance with
organizational success to help foster a results-oriented organizational
culture. Creating such a culture is one cornerstone identified in GAO’s
model of strategic human capital management.
GAO initiated this study to identify how selected agencies are
strategically using their performance management systems. GAO talked
with key human capital decision makers from each country including
national audit offices, central management and human capital agencies,
and line agencies, as well as representatives of employee associations.
What GAO Found:
As U.S. agencies consider reforms to their performance management
systems, experiences in Australia, Canada, New Zealand, and the United
Kingdom provide insights of how to use such systems as a tool to create
a results-oriented culture. These countries are doing the following:
Creating a “line of sight” between individual and organizational goals.
Agencies use performance agreements to align and cascade organizational
goals with individual performance. In Australia, one agency cascades
departmental goals down to specific commitments in individual
performance agreements for its entire staff. Performance agreements are
also used to link individual performance expectations to crosscutting
goals. In Canada, a department uses performance agreements to identify
the departmental crosscutting priorities to which an executive’s
specific performance commitment contributes and the other organizations
whose collaboration is needed to achieve it.
Using competencies to provide a fuller assessment of individual
performance. Agencies complement assessments of the results an
individual achieved with a consideration of the skills and abilities
used to achieve them. In the United Kingdom, performance agreements for
senior executives include both results-oriented business objectives and
certain competencies that these executives are expected to demonstrate
in order to effectively achieve their business objectives.
Linking pay to individual and overall organizational performance.
Agencies award sizable individual performance pay based on clear
criteria, and in some cases, also emphasize the achievement of
organizational goals, while others identified challenges with linking
pay to performance. In the Canadian Province of Ontario, an individual
executive’s performance pay is based on the performance of the
provincial government as a whole, the executive’s home ministry, the
ministry’s contribution to governmentwide results, as well as the
individual’s own performance. The amount of the award can range up to
20 percent of base salary. An Australian agency encountered challenges
when it tried to link pay with performance because employees felt the
system was applied inconsistently.
Fostering organizationwide commitment to results-oriented performance
management. Agencies recognize the importance of top leadership
commitment and actively involved employees, unions or associations, and
other stakeholders when reforming their performance management systems.
In New Zealand, one department, in cooperation with the union, asked
employees to vote on performance measures before they would be used in
their individual assessments.
This is a test for developing highlights for a GAO report. The full
report, including GAO's objectives, scope, methodology, and analysis is
available at [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-862].
For additional information about the report, contact J. Christopher
Mihm (202-512-6806). To provide comments on this test highlights,
contact Keith Fultz (202-512-3200) or e-mail HighlightsTest@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Creating a Line of Sight between Individual and Organizational Goals:
Using Competencies to Provide a Fuller Assessment of Performance:
Linking Pay to Individual and Organizational Performance:
Fostering Organizationwide Commitment to Results-Oriented Performance
Management:
Concluding Observations:
Agency Comments:
Appendixes:
Appendix I: Objective, Scope, and Methodology:
Appendix II: Key Human Capital Decision Makers in Australia:
Key Human Capital Decision Makers in the Australian Public Service:
Sources for Additional Information:
Appendix III: Key Human Capital Decision Makers in Canada and Ontario:
Key Human Capital Decision Makers in the Canadian Public Service:
Key Human Capital Decision Makers in the Ontario Public Service:
Sources for Additional Information:
Appendix IV: Key Human Capital Decision Makers in New Zealand:
Key Human Capital Decision Makers in the New Zealand Public Service:
Sources for Additional Information:
Appendix V: Key Human Capital Decision Makers in the United Kingdom:
Key Human Capital Decision Makers in the United Kingdom Public Service:
Sources for Additional Information:
Figures:
Figure 1: Ranges for the Three Core Pay Bands of the United Kingdom’s
SCS:
Figure 2: Process for Awarding Performance Pay to Executives in the
OPS:
Abbreviations:
AAFC: Agriculture and Agri-Food Canada:
ANAO: Australian National Audit Office:
APEX: Association of Professional Executives of the Public Service of
Canada:
APSC: Australian Public Service Commission:
ATO: Australian Taxation Office:
CYF: Department of Child, Youth, and Family Services (New Zealand):
DEWR: Department of Employment and Workplace Relations (Australia):
IRD: Inland Revenue Department (New Zealand):
MBS: Management Board Secretariat (Ontario):
OECD: Organisation for Economic Co-operation and Development:
OMB: Office of Management and Budget:
OPM: Office of Personnel Management:
OPS: Ontario Public Service:
PMP: Performance Management Program (Canada):
PSA: Public Service Association (New Zealand):
SCS: Senior Civil Service (United Kingdom):
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
August 2, 2002:
The Honorable Daniel K. Akaka:
Chairman:
The Honorable Thad Cochran:
Ranking Minority Member:
Subcommittee on International Security, Proliferation, and Federal
Services:
Committee on Governmental Affairs:
United States Senate:
The Honorable Richard J. Durbin:
Chairman:
The Honorable George V. Voinovich:
Ranking Minority Member:
Subcommittee on Oversight of Government Management, Restructuring, and
the District of Columbia:
Committee on Governmental Affairs:
United States Senate:
Leading organizations have long understood the relationship between
managing people—their human capital—and achieving organizational
success. An organization’s people define its culture, drive its
performance, and embody its knowledge base. In fact, strategic human
capital management serves as the foundation for any serious
transformation and change management initiative.
Strategic human capital management is a pervasive challenge facing
public sector organizations both here and abroad. In January 2001, we
identified strategic human capital management as a high-risk area for
the U.S. federal government after finding that a lack of attention to
strategic human capital management had created a risk to the federal
government’s ability to effectively serve the American people.
[Footnote 1] The fundamental problem has been the long-standing lack of
a consistent strategic approach to marshaling, managing, and
maintaining the human capital needed to maximize government’s
performance and assure accountability.
In an effort to help agency leaders integrate human capital
considerations into daily decision making and into the program results
they seek to achieve, in March 2002 we released an exposure draft of a
model of strategic human capital management that highlights the kinds
of thinking that agencies should apply and steps they can take to
manage their human capital more strategically. [Footnote 2] As detailed
in that model, a cornerstone of effective strategic human capital
management is to develop an organizational culture that focuses on
results. One way leading organizations develop such a culture is to use
their individual performance management systems to help achieve
organizational goals. Effective performance management systems seek to
provide candid and constructive feedback to help individual employees
maximize their potential in understanding and realizing organizational
goals and objectives, provide management with the objective and fact-
based information it needs to reward top performers, and provide the
necessary information and documentation to deal with poor performers.
We have also observed that modernizing agency performance management
systems and linking them to agency strategic plans and desired outcomes
should be a top priority. [Footnote 3] To that end, we will soon issue
a report on selected agencies’ performance management systems for
senior executives and their use of a set of balanced expectations to
hold them accountable for results.
The United States is not alone in examining how government agencies can
use their performance management systems as a tool to foster a more
results-oriented organizational culture. The Organisation for Economic
Co-operation and Development (OECD) has reported that its member
nations have increasingly moved towards performance pay and appraisal
systems that reward employees, hold them accountable for the quality of
their work, and connect their efforts to organizational results.
[Footnote 4]
We are addressing this report to you because of your ongoing interest in
federal human capital issues and how agencies can effectively manage
their human capital to achieve their organizational goals. Our
objective for this report was to describe how four OECD member
countries—Australia, Canada, New Zealand, and the United Kingdom—have
begun to use their performance management systems to help their
governments achieve results. The experiences of these four countries
may prove valuable to federal agencies in the United States as they
develop their own initiatives to integrate individual performance with
the achievement of organizational goals. Similar to the United States,
these countries have been implementing results-oriented management
reforms over the past decade. We identified the examples described in
this report through evaluations by and discussions with government and
audit office officials in these countries. However, since we did not
attempt to assess the prevalence of the practices either within or
across the four countries, agencies other than those cited may also be
using similar practices or approaches. In addition, we did not
independently evaluate the effectiveness of the performance management
systems used in the four countries nor the impact these systems may
have had on agency performance. See appendix I for additional
information on our objective, scope, and methodology.
These countries are experiencing challenges in managing their human
capital, and in particular, managing individual performance. Australia
has identified the credibility of its performance management systems as
one of the key human capital challenges it faces. In 1999, Canada
implemented a significant reform of its performance management and
reward system for senior executives after a review found the previous
system created a lack of trust between senior executives and the
government. New Zealand found that deficiencies in individual
performance management systems threatened the capability of agencies to
deliver on their missions. Finally, the United Kingdom identified the
need to improve performance management systems after finding that
complex and inconsistent performance management practices could deter
employees from taking on more responsibility and inhibited the
government from offering significant rewards to top performers.
Results in Brief:
While the performance management initiatives in Australia, Canada, New
Zealand, and the United Kingdom reflect their specific organizational
structures, cultures, and priorities, their experiences with developing
and implementing results-oriented individual performance management
initiatives may provide U.S. federal government agencies with
information and insights as they undertake their own initiatives to
implement strategic human capital practices. These countries have begun
to use their performance management systems to:
* create a “line of sight” between individual and organizational goals;
* use competencies to provide a fuller assessment of individual
performance;
* link pay to individual and overall organizational performance, and;
* foster organizationwide commitment to results-oriented performance
management.
First, agencies use their performance management systems to create a
line of sight in order to clearly demonstrate how an individual’s
performance contributes to the overall goals of the organization as
well as to broader governmentwide priorities. For example, performance
management systems in Canada and Australia require performance
agreements of top agency leadership to align with overall
organizational goals and then cascade down to lower-level executives,
managers, and staff. In addition, performance agreements align
individual commitments to crosscutting goals. For example, Agriculture
and Agri-Food Canada uses performance agreements to communicate the
connections between individual performance commitments and departmental
crosscutting goals, and to identify organizational units both inside
and outside the agency whose collaboration is needed to achieve those
commitments. The Canadian Performance Management Program uses
performance agreements to align the individual performance commitments
of the deputy ministers in charge of its agencies with broader
governmentwide priorities.
Second, agencies use competencies, in addition to considering an
individual’s contribution to achieving results, in order to provide a
fuller assessment of individual performance. The United Kingdom,
Australia, and New Zealand assessed employee performance by considering
both what an individual achieved and the competencies he or she used to
achieve it. For example, performance agreements that the United
Kingdom’s Senior Civil Service uses contain both results-oriented
business objectives and certain core competencies that these executives
are expected to demonstrate in order to effectively achieve these
objectives. New Zealand’s Inland Revenue Department evaluates the
performance of all staff against a core group of competencies and may
also include a set of technical competencies for those individuals in
specialized positions.
Third, agencies link individual pay to individual and organizational
performance. Governmentwide performance management systems for senior
executives in the United Kingdom and Canada emphasize this link by
offering significant performance awards, including salary increases,
one-time bonuses, or a combination of the two. The United Kingdom
awards top-performing senior executives salary increases and bonuses up
to a maximum of 20 percent of base pay. [Footnote 5] Under Canada’s
Performance Management Program, a significant portion of an executive’s
total cash compensation package takes the form of “at-risk” pay, a lump-
sum payment that can range up to 25 percent of base pay. Both of these
performance management systems link pay to performance through clearly
articulated criteria and neither system allows for any pay increases
solely on the basis of seniority or length of service. Other agencies,
on the other hand, such as Australia’s Centrelink encountered
challenges when linking pay with performance. In response to employee
concerns about the consistency and fairness of performance awards, the
agency is considering whether to discontinue performance pay.
In addition to considering individual performance, the Ontario Public
Service and the Australian Taxation Office also place considerable
weight on whether, and to what extent, organizational results were
achieved when awarding performance pay to individuals. For example, the
amount of performance pay an executive in the Ontario Public Service is
eligible to receive is linked to the performance of the provincial
government as a whole, the performance of the executive’s agency, the
contribution of that agency to overall governmentwide results, as well
as the individual’s own performance.
Fourth, agencies demonstrate a sustained organizationwide commitment to
making individual performance management more results-oriented. Top
leadership demonstrated its commitment by initiating governmentwide
efforts to reform performance management systems. For example, in both
Canada and the United Kingdom, top civil service officials identified
governmentwide performance management as a key concern and continued to
support reform efforts throughout their development and implementation.
They also actively used performance agreements themselves.
Another way agencies seek to foster commitment in more results-oriented
performance management systems is to involve stakeholders and include
employee perspectives when designing or reforming their performance
management systems. For example, the United Kingdom, Canada, and New
Zealand all involved employees and union or association officials when
developing new performance management systems to improve employee
acceptance before major changes were implemented. Agencies consulted a
wide range of stakeholders early in the process, obtained feedback
directly from employees, and engaged employee unions or associations
throughout development and implementation.
We provided drafts of the relevant sections of this report to officials
from the central agencies responsible for human capital issues, the
individual agencies, and the national audit offices for each of the
countries we reviewed. They generally agreed with the contents of this
report. We made minor technical clarifications where appropriate. We
also provided a draft of this report to the Director of the Office of
Personnel Management (OPM) for her information.
Background:
Strategic human capital management, and specifically the need to develop
results-oriented organizational cultures, is receiving increased
attention in the United States as the federal government comes to
grapple with the cultural transformation implications of the transition
under way in government, including basic questions about what
government does, how it does it, and who does the government’s
business. Momentum for reform has been building with the Congress, OPM,
the Office of Management and Budget (OMB), and agencies themselves all
taking important steps. The Congress has underscored the consequences
of existing human capital weaknesses through a wide range of oversight
hearings held over the last few years. In recognizing the importance of
creating a results-oriented culture in federal agencies, the Congress
is considering legislative proposals to, among other things, focus
attention on the impact poor performance can have on the effectiveness
of an organization and require agencies to have chief human capital
officers to select, develop, and manage a productive, high-quality
workforce.
In addition, the President’s Management Agenda, released in August 2001,
identified human capital as one of five key governmentwide management
challenges currently facing the federal government. Subsequently, OPM
and OMB developed criteria that included the creation of a performance
culture that assesses and rewards employees based on their contributions
to organizational goals as a key dimension of effective human capital
management.
In our model of strategic human capital management, we identify two
critical success factors that can assist organizations in creating
results-oriented cultures. The first critical factor is to empower and
include employees in setting and accomplishing the organization’s
programmatic goals. Our work suggests ways of accomplishing this step
such as demonstrating top leadership commitment to management reforms
and actively engaging employee groups when carrying out such reforms.
[Footnote 6]
The second critical success factor of a results-oriented culture is to
link unit and individual performance to organizational goals. At the
most senior level, one way to encourage accountability within an
organization is through the use of executive performance agreements.
Our work has shown that agencies have benefited from using results-
oriented performance agreements for political and senior career
executives. [Footnote 7] Although each agency developed and implemented
performance agreements that reflected its specific organizational
priorities, structures, and cultures, the performance agreements shared
the following characteristics. They:
* strengthened alignment of results-oriented goals with daily
operations;
* fostered collaboration across organization boundaries;
* enhanced opportunities to discuss and routinely use performance
information to make program improvements;
* provided a results-oriented basis for individual accountability, and;
* maintained continuity of program goals during leadership transitions.
As a result of amended OPM regulations that change the way agencies
evaluate members of the Senior Executive Service governmentwide,
agencies are to place increased emphasis on holding senior executives
accountable for organizational goals. While agencies can tailor their
performance management systems to their unique organizational
requirements and climates, they are to hold executives accountable for
results; appraise executive performance on those results balanced
against other dimensions, including customer satisfaction and employee
perspective; and use those results as the basis for performance awards
and other personnel decisions. Agencies were to implement the new
policies for the Senior Executive Service appraisal cycles that began
in 2001.
OPM has found that agencies are not making meaningful distinctions
among senior executive performance. Specifically, agencies rated about
85 and 82 percent of senior executives at the highest level their
systems permit in their performance ratings in fiscal years 2000 and
2001, respectively. In addition, OPM data show that governmentwide
approximately 52 percent of senior executives were rated and received
bonuses each year since fiscal year 1999. From fiscal year 1999 through
2001, the average bonus payments increased from about $10,200 to about
$12,300.
Countries’ Performance Management Systems:
The four countries included in our review have taken a wide range of
approaches to individual performance management.
Australia. Australia decentralized responsibility for setting and
implementing most human capital policies to agencies in 1999. Under
Australian law, agencies are required to establish performance
management systems for their employees. Because agency chief executives
are given broad discretion in how their performance management systems
are structured, there is considerable variation both among different
agencies and within individual agencies. Typically, the agency
negotiates with either an individual or a group of employees over the
specific features of the performance management system, such as
performance expectations, salary, and bonuses. The Australian Public
Service Commission (APSC) and the Department of Employment and
Workplace Relations (DEWR) are the central government agencies that
provide support and guidance to agencies to help them design, implement,
and review performance management and pay systems that comply with
legislative and policy requirements. For more information on the role of
APSC and other key decision makers, and for Internet links to the
specific Australian agencies mentioned in this report, see appendix II.
Canada. While Canada has taken steps over the last several years to
increase the role of individual agencies in setting and implementing
human capital policies, three central agencies—the Privy Council
Office, the Treasury Board of Canada Secretariat, and the Public Service
Commission—set and implement many aspects of human capital policy. For
example, the central government coordinates a governmentwide system for
managing the performance of its top civil servants and executives but
allows some flexibility on the part of the agencies that are
responsible for administering the program. Individual agencies may
establish their own performance management systems below the executive
level. In the provincial government of Ontario, the Cabinet Office and
the Management Board Secretariat set human capital management policy and
share responsibility for implementing performance management systems in
the provincial government. For more information on the role of the
major human capital decision makers in both Canada and Ontario, and for
Internet links to the specific Canadian agencies mentioned in this
report, see appendix III.
New Zealand. In New Zealand, individual agencies are responsible for
setting and implementing most human capital policies, including the
creation of performance management systems. As a result of this
decentralization, performance management systems vary across the New
Zealand government. The State Services Commission, the central
government agency that monitors the human capital policies and practices
of agencies, works to provide chief executives and their departments
with data, advice, and examples of good practices related to human
capital issues including performance management. For more information
on the role of the State Services Commission and other key decision
makers, and for Internet links to the specific New Zealand agencies
mentioned in this report, see appendix IV.
United Kingdom. The United Kingdom’s Cabinet Office has a key role in
setting and implementing the central government’s overall human capital
policies. In particular, the Cabinet Office is directly responsible for
policies concerning the United Kingdom’s top executive cadre, the
Senior Civil Service (SCS). Over the past few decades, the
responsibility for human capital policies in the United Kingdom at
grades below SCS has become increasingly decentralized, so that
individual agencies can develop performance management systems to meet
their own specific needs and circumstances. For additional information
on the role of the Cabinet Office and other key decision makers, and
for Internet links to the specific United Kingdom agencies mentioned in
this report, see appendix V.
Creating a Line of Sight between Individual and Organizational Goals:
Leading organizations recognize that a key element of an effective
performance management system and cultural transformation is to create a
line of sight that shows how individual performance can contribute to
organizational goals. Similar to the United States, agencies in other
countries are placing a greater emphasis on achieving this alignment
between individual and organizational results. A first step towards
this end is to align the performance expectations of top leadership with
organizational goals and then cascade those expectations down to lower
levels. Our work has shown that while many U.S. federal agencies
continue to struggle with understanding the link between individuals’
day-to-day activities and broader agency or governmentwide results,
agencies both in the United States and abroad use tools such as
performance agreements to help strengthen this connection. [Footnote 8]
Countries use performance agreements between an employee and supervisor
to (1) align and cascade agency organizational goals down to individual
performance expectations and (2) link individual performance
expectations to crosscutting goals.
Cascading Performance Expectations within an Organization:
Agencies in Canada and Australia use performance agreements to align and
cascade individual performance expectations to organizational goals
through several levels in their organizations.
Canada’s Performance Management Program (PMP) cascades goals down
through all levels of senior executives. It requires that each
department’s deputy minister—the senior career public service official
responsible for leading Canadian government departments—has a written
performance agreement that links his or her individual commitments to
the organization’s business plan, strategies, and priorities. From the
deputy minister, commitments cascade down through assistant deputy
ministers, directors general, and directors. At every level, the
performance agreement between each executive and his or her manager is
intended to document a mutual understanding about the performance that
is expected and how it will be assessed. Some agencies, such as
Industry Canada and the Public Service Commission, have established
their own programs to cascade commitments below the director level and
require the use of performance agreements for some middle managers or
supervisors within their organizations.
The Ontario Public Service (OPS) uses performance agreements to align
and cascade performance goals down to all organizational levels and all
employees. Since 1996, OPS has required senior executives to have annual
performance agreements that link their performance commitments to key
provincial priorities and approved ministry business plans. In 2000, OPS
extended this requirement so that agreements are now required of all
employees from senior executives to frontline employees. Specifically,
all employees develop individual performance commitments that link to
their supervisors’ performance agreements and their ministries’
business plans. Senior executives and some middle-level managers and
specialists also link commitments contained in their individual
performance plans to the government of Ontario’s key provincial
priorities in areas such as fiscal control and management, human
capital leadership, and fostering a culture of innovation.
In Australia, DEWR implemented a business planning model in fiscal year
2000–2001 that cascades departmental goals so they correspond to
specific expectations in individual performance agreements. For
example, to help achieve DEWR’s outcome goal of improving the
performance of the Australian labor market by the efficient and
equitable matching of people to jobs, the Department identified as one
of its priorities to “develop, implement, and manage…the Work for the
Dole,” a program intended to provide work experience to job seekers.
DEWR cascades this priority down to an individual’s performance
expectation to “fully develop the Community Work Coordinators model,” a
particular tool used to manage the placement of job seekers. In a 2001
review of performance management systems across the federal public
service, the Australian Management Advisory Committee, a permanent
committee of department secretaries and agency heads established by law
to provide advice to government on management issues, cited DEWR as a
good example of aligning organizational and individual performance
planning and cascading performance goals.
Linking Performance Expectations to Crosscutting Goals:
As public sector organizations shift their focus of accountability from
outputs to results, they have recognized that achieving those results
often transcends specific organizational boundaries. To this end,
Canada uses performance agreements to (1) help identify the
crosscutting connections both within and between agencies and (2) align
the performance expectations of top-level executives to governmentwide
priorities.
Canada’s agricultural department, Agriculture and Agri-Food Canada
(AAFC), uses performance agreements to specify which of six
departmental crosscutting priorities a branch head’s specific
performance commitment contributes to and the internal or external
organizations whose collaboration is needed to deliver on that
commitment. For example, the head of AAFC’s Market and Industry
Services Branch has in his 2001–2002 performance agreement the
commitment to “lead efforts to develop AAFC’s ability to deal with
emerging technical trade issues.” The agreement indicates that this
commitment aligns with the Department’s crosscutting priority area
focusing on “international issues.” The agreement also lists two
internal units whose collaboration is needed to meet the commitment,
the agency’s Research Branch and its Strategic Policy Branch, as well
as two external organizations—the Canadian Food Inspection Agency and
Health Canada. While the performance agreement provides a vehicle for
identifying and communicating the various organizations associated with
each commitment, AAFC leaves it up to the executives to determine how
to collaborate with them when working to fulfill their agreements.
To further increase staff understanding of how they contribute to the
Department’s crosscutting priorities, AAFC put the performance
agreements for all branch heads on its computer network. A senior human
capital official told us that, while not required to do so, many
executives below the branch head level also include direct references
to crosscutting priorities and collaborating organizations in their
performance agreements. While AAFC has not conducted an evaluation on
the effectiveness of using the performance agreements of its branch
heads to identify crosscutting areas between branches and outside
agencies, this AAFC official told us that using performance agreements
in this way helps to reinforce the importance of collaboration to
achieve results-oriented goals.
Under PMP, Canada also uses performance agreements to align the efforts
of top-level executives to governmentwide priorities. Specifically,
deputy ministers are required to align commitments contained in their
individual performance agreements to governmentwide priorities that the
Clerk of the Privy Council—the head of the Canadian Public Service—sets
annually. In the 2000–2001 fiscal year, such priorities included
improving governmentwide capacity to recruit, retain, and develop its
human capital; emphasizing diversity in the workplace; and using e-
government and other technologies to better serve Canadians. For
example, to advance the government’s agenda to recruit, retain, and
develop human capital, a deputy minister included a commitment in his
performance agreement for that year to provide “excellent leadership
and management of the Department [in the area of] human resource
management.” This included taking steps to develop the future human
resource capacity of the department and meet departmental commitments
in governmentwide initiatives such as the Universal Classification
Standard, a reform of job classifications.
During the initial implementation of this requirement to align
executives’ performance agreements with governmentwide priorities,
Canadian officials found that there were too many governmentwide
priorities for deputy ministers to easily link them to specific
objectives of their own. Subsequently, they limited governmentwide
priorities to a few key areas where results were of particular
importance. According to a senior Canadian official involved in the
program, this change helped to focus the deputy ministers’ performance
agreements as management tools to direct change.
Using Competencies to Provide a Fuller Assessment of Performance:
When evaluating employee contributions to results, agencies in other
countries use competencies as a tool to examine how they have achieved
those results. Competencies, which define the skills or supporting
behaviors that employees are expected to exhibit as they effectively
carry out their work, can provide a fuller picture of an individual’s
performance. OPM has reported that the U.S. federal government, with
some exceptions, has not linked competencies with performance pay.
Performance management systems in the United Kingdom, Australia, and
New Zealand consider competencies in their evaluations of staff.
In the United Kingdom, SCS performance agreements include both business
objectives and certain core competencies that senior executives should
develop in order to effectively achieve these objectives. For example,
an SCS executive and his or her supervisor select one or two
competencies, such as “thinking strategically,” “getting the best from
people,” or “focusing on delivery.” Each competency is further described
by several specific behaviors. For example, the competency of “getting
the best from people” includes behaviors such as “developing people to
achieve high performance;” “adopting a leadership style to suit
different people, cultures, and situations;” “coaching individuals so
they achieve their best;” and “praising achievements and celebrating
success.” The supervisor evaluates the executive’s demonstration of
these selected competencies and the achievement of business objectives
when determining the size of the annual pay award.
When evaluating individuals, Australia’s DEWR reviews an individual’s
performance against key business priorities and his or her behavior
against DEWR’s values. DEWR has identified six values—teamwork, respect,
openness, professionalism, integrity, and creativity—and incorporates
these values into the performance assessment process. Individuals
receive separate ratings for performance against key business
priorities and for the demonstration of the Department’s values. While
DEWR considers contributions to business priorities to be important, it
also places significant weight on a person’s demonstration of values.
For example, an employee receiving a rating of “outstanding” in the
achievement of business priorities and “unsatisfactory” in the
demonstration of values could receive an overall “unsatisfactory”
performance rating for the year. DEWR provides an assessment assistance
package to managers to help maintain the objectivity and consistency of
ratings across the organization.
In New Zealand, the Inland Revenue Department (IRD) evaluates the
performance of its employees against results and core and technical
competencies and weights these results and competencies differently in
each employee assessment depending on the position. All employees are
evaluated on their commitments to deliver results, which account for 40
to 55 percent of their overall performance assessments. In addition, all
employees are evaluated against core organizational competencies such as
customer focus, strategic leadership, analysis and decision making, and
communication, which make up 20 to 50 percent of their assessments.
Some employees who have special knowledge and expertise in areas such
as tax policy, information technology, and human capital are also
evaluated against technical competencies that may account for 20 to 35
percent of their overall performance assessments. [Footnote 9] An
employee who is considered fully successful in achieving his or her
performance commitments, but does not demonstrate the expected
competencies, may not be assessed as fully successful in his or her
particular position. Conversely, if an employee demonstrates the
expected competencies, but does not achieve the agreed to performance
commitments, he or she could also be considered less than fully
successful. As part of an IRD review of the program conducted in 2000,
both managers and staff cited IRD’s policy of evaluating individual
performance based on both results and competencies as a better way to
measure staff performance than focusing on only results or competencies
alone.
Linking Pay to Individual and Organizational Performance:
Results-oriented performance management systems place a greater
emphasis on the performance of employees and their contributions to
results rather than seniority when determining pay. Agencies use
performance pay to recognize, reinforce, and reward high performance. In
addition, these organizations offer significant performance awards and
use clear criteria when making performance pay decisions. They also
emphasize the achievement of organizational results when determining
individual performance rewards.
Using Performance Pay to Recognize Executive Contributions:
Leading organizations understand the importance of creating effective
incentives and rewards for high-performing employees. Our work has
shown that one tool organizations can use to maximize their performance,
ensure accountability, and achieve their strategic goals and objectives
is the effective use of incentives—including pay—to recognize,
reinforce, and reward high performance. [Footnote 10] While the United
Kingdom and Canada use a variety of ways, including salary increases,
one-time bonuses, or a combination of the two, to link pay to the
performance of their executives, in each system the amount of pay
available is significant, specifically from 10 to 25 percent of the
executive’s base pay. In addition, they use clear criteria when they
make pay decisions. One challenge to implementing a system that links
pay to performance is to ensure that employees perceive that
performance pay is awarded fairly.
When designing its new SCS performance management system, which first
went into operation with the 2001–2002 fiscal year, the United Kingdom’s
Cabinet Office focused on better rewarding top performers through pay
and bonuses to foster an environment where members of the SCS were
challenged to continuously improve their performance. Under the United
Kingdom’s SCS performance management system, performance pay for
executives is dependent upon two factors: (1) individual performance as
measured against commitments contained in the executive’s performance
agreement and (2) the individual’s relative performance as judged
against his or her peers. As a result of this process, members of the
SCS are placed into high, medium, and low performance categories, which
correspond to the size and type of performance pay they receive.
In contrast to the performance bonuses under the previous system, the
United Kingdom’s current SCS performance management system is
designed to more strongly link pay and performance by awarding top
performers larger amounts of performance pay, including salary increases
and bonuses of up to 20 percent of base pay. The Cabinet Office also
eliminated pay increases based on length of service. The United
Kingdom’s new SCS performance management system prevents executives
performing at an unsatisfactory level from receiving any pay increase,
including the annual cost-of-living adjustment typically awarded by the
government. Since 2002 is the first year that bonuses are available
under the new SCS performance management system, officials at the
Cabinet Office told us that they expect the performance awards to
remain modest for the first few years but to increase over time.
In another effort to better reward top achievers and increase the
flexibility of the system, the United Kingdom increased the range of
base pay that can be offered to members of the SCS. For example, in
2002, for executives in Band 1 of the SCS, the lowest of the three core
pay bands generally consisting of SCS policy and operational positions
such as senior advisors or division heads, salaries can range from
about $78,000 to over $163,000—a difference of more than $85,000. For
executives in Band 3, the SCS’s highest pay band consisting of top
leadership posts such as the chief executive of a large agency or the
chief financial or legal officers of certain key departments, salaries
can range from about $132,600 to over $280,000—a difference of more
than $148,000 (see fig. 1).
Figure 1: Ranges for the Three Core Pay Bands of the United Kingdom’s
SCS:
[See PDF for image]
The following data is depicted:
United Kingdom Senior Civil Service core pay band: and 1[A];
Salary in U.S. dollars (2002): $78,002-$163,805.
United Kingdom Senior Civil Service core pay band: Band 2;
Salary in U.S. dollars (2002): $107,643-$226,207.
United Kingdom Senior Civil Service core pay band: Band 3;
Salary in U.S. dollars (2002): $132,604-$280,809.
Note: U.S. dollar equivalents of SCS salary rates were calculated based
on the value of the United Kingdom pound sterling to the U.S. dollar on
July 7, 2002 (£1 = $1.522).
[A] Some departments use an additional pay category, Band 1A, which
ranges from $90,483 to $179,406. Departments also have the option of
increasing the minimum pay by $5,327 for Band 1 and 1A positions based
in London.
Source: GAO analysis of data from the United Kingdom Review Body on
Senior Salaries, 2002.
[End of figure]
Canada has also strengthened the link between pay and performance for
its executives. Under Canada’s PMP, introduced in 1999, a significant
portion of the total cash compensation package that top and senior
executives can receive takes the form of “at-risk” pay. This annual
lump-sum payment, which ranges from 10 to 15 percent of base pay for
senior executives, and as high as 25 percent for deputy ministers,
represents a significant increase over the amounts available to
executive-level employees under the program previously in place. The
Association of Professional Executives of the Public Service of Canada
(APEX) has emphasized the importance of having significant performance
bonuses in order for them to be effective motivators.
Another central feature of Canada’s PMP is that both increases in base
salary and at-risk pay are only awarded to executives who successfully
achieve commitments agreed to in their annual performance agreements.
These commitments are of two types: “ongoing commitments,” which
include continuing responsibilities associated with the position, and
“key commitments,” which identify priority areas for the current
performance cycle. Departments award increases in base pay to
executives who successfully carry out their ongoing commitments and
award at-risk pay to individuals who, in addition to meeting all
ongoing commitments, also successfully deliver on key commitments.
Executives who do not meet at least one key commitment are not eligible
for this lump-sum performance award. Under PMP, there are no automatic
salary increases connected with length of service.
The Canadian government has and continues to evaluate the operation and
impact of the PMP. In December 2000, an independent advisory committee
to the government, the Advisory Committee on Senior Level Retention and
Compensation, reviewed the progress of the program to date and
determined that it had started well and represented a critical factor
in the government’s drive to become more results-oriented.
Subsequently, in March 2002, the Advisory Committee identified the at-
risk pay provision of the PMP as a critical component of a successful
senior-level compensation strategy. In addition, according to an
official at the Treasury Board of Canada Secretariat, the Board
conducted a preliminary evaluation of the PMP in 2002, for a sample of
departments, and will be implementing a framework later this year to
monitor and evaluate the program’s effectiveness on an ongoing basis.
Australia’s Centrelink agency encountered challenges when it tried to
link pay with performance. A Centrelink official told us that national
staff consultations conducted after the first year of the agency’s new
performance-based salary advancement program found that employees felt
the performance ratings and accompanying pay increases were applied and
distributed inconsistently across the agency. Specifically, employees
complained that a particular rating might translate into larger or
smaller payouts depending on the geographic location of the particular
office. The official told us that this practice appears to have
resulted in poor perceptions among staff and may have threatened the
credibility of the performance management program. This official went
on to say that the agency was reconsidering whether to award
performance pay in the next cycle while it conducts additional reviews
of the program’s implementation.
Emphasizing Organizational Results when Awarding Performance Pay:
As public sector organizations shift their focus on accountability from
outputs to results, they recognize that achieving those results requires
teamwork, partnering, and collaboration. OPM has recently reported that
the U.S. federal government generally does not provide employees with
clear, strong incentives for organizational success. Two performance
management systems—the OPS and the Australian Taxation Office (ATO)—
place considerable emphasis on the achievement of organizational
results when evaluating individual performance and determining
individual rewards.
OPS links executive performance pay to the performance of the provincial
government as a whole, the performance of the executive’s home ministry,
the contribution of that ministry to overall governmentwide results, as
well as the individual’s own performance. The amount of the award an
individual executive can receive ranges significantly, from no payment
to a maximum of 20 percent of base salary. As shown in figure 2, to
determine the amount of performance pay for any given fiscal year, the
Premier and Cabinet, the top political leadership of the Ontario
government, first determine whether and to what extent the government
as a whole has achieved the key provincial goals it established at the
beginning of the fiscal year. If they determine that the government has
met a threshold of satisfactory performance, these officials designate
a certain percentage as the governmentwide “incentive envelope,” which
represents the percentage that will be the basis for subsequent
calculations used to determine performance awards. The Secretary of
Cabinet, in consultation with the Premier, then assesses each
ministry’s performance based on the ministry’s relative contribution
enabling Ontario to achieve its key provincial goals and the ministry’s
performance against its own approved business plan. As a result of this
assessment, each ministry receives an amount equivalent to a specific
percentage of the ministry’s total executive payroll for performance
awards. Finally, each ministry determines the actual amount of an
executive’s performance award by assessing both the individual’s actual
performance against his or her prior performance commitments as well as
the individual’s level of responsibility.
For example, in the 1999–2000 performance cycle, the Premier and Cabinet
determined that the government as a whole had met a threshold of
satisfactory performance and set an “incentive envelope” of 10 percent.
The Secretary of Cabinet and the Premier then assessed the performance
of a particular ministry deciding that it had a “critical impact” on the
government’s ability to deliver on its results that year, including the
roll out of its quality service and e-government initiatives. They also
found that this ministry “exceeded” the key commitments established in
its business plan. In this case, the ministry received an amount
equivalent to 12.5 percent of its executive payroll towards performance
payments. Individual awards, depending upon the performance and
position of the executive, ranged from no payment to 15 percent, and
could have reached as high as 20 percent under the program’s
regulations. In contrast, during the same performance cycle, the
Secretary of Cabinet and the Premier found that another ministry had
only “contributed” to governmentwide goals while having “met” its
business commitments. Accordingly, this ministry received only 5
percent of its executive payroll towards performance payments.
Individual awards in this case ranged from no payment to 7.5 percent.
Figure 2: Process for Awarding Performance Pay to Executives in the
OPS:
[See PDF for image]
The following data is depicted:
Assess governmentwide performance:
What is assessed?
The Premier and Cabinet assess overall performance of Ontario
government against key priorities set at the beginning of the year and,
if a performance threshold is met, they decide on a governmentwide
“incentive envelope.”
Assess ministry performance:
What is assessed?
The Secretary of Cabinet, in consultation with the Premier, assesses
each ministry’s performance and assigns each ministry a percentage that
is based on:
* the contribution the ministry has made to achieving governmentwide
results, and;
* the ministry’s performance against its own business plan.
Assess individual performance:
What is assessed?
Each ministry calculates an individual performance award based on:
* a rating of the executive’s individual performance by his or her
manager based on the commitments contained in the executive’s
individual performance agreement, and;
* the individual executive’s position and accompanying level of
responsibility as reflected in one of four executive positions:
manager, director, assistant deputy minister, and deputy minister.
How does the process work?
An example of how OPS awarded executive performance pay in 1999-2000:
Governmentwide performance:
In 1999-2000, the Premier and Cabinet set 10% as the governmentwide
“incentive envelope.”
10% Governmentwide “incentive envelope” is applied to:
Lower performing agency:
A ministry that “contributed” to governmentwide goals and “met” its key
business commitments received 5% of its executive payroll for
performance awards.
5% Ministry percentage is applied to:
Lower performing individual:
An executive who performed the job of a “manager,” the least senior
executive position, and had “met” some commitments contained in his or
her performance agreement received a performance award of 2.5% of base
pay.
2.5% Individual performance award.
Or:
Governmentwide performance:
In 1999-2000, the Premier and Cabinet set 10% as the governmentwide
“incentive envelope.”
10% Governmentwide “incentive envelope” is applied to:
Higher performing agency:
A ministry that had a “critical impact” in achieving governmentwide
goals and “exceeded” its key business commitments received 12.5% of its
executive payroll for performance awards.
12.5% Ministry percentage is applied to:
Higher performing individual:
An executive who performed the job of an “assistant deputy minister,”
the second most senior executive position, and had “exceeded”
commitments contained in his or her performance agreement received a
performance award of 15% of base pay.
15% Individual performance award.
Source: GAO presentation of information from the Centre for Leadership,
Ontario Cabinet Office.
[End of figure]
In 2000, the Australian National Audit Office (ANAO) cited ATO’s
performance management system as an example of a better practice in the
way it links individual pay with organizational results. ANAO reported
that since 1998, ATO has linked the size of individual performance
bonuses to its success in achieving its organizational outcomes. In the
beginning of each assessment year, the ATO Commissioner identifies
specific organizational outcomes to be achieved that year with
corresponding performance measures. For example, two recent outcomes
were to (1) improve debt collection and (2) improve taxpayer service
standards. At the end of the year, the Commissioner determines whether
ATO achieved its organizational outcomes, and if not, may reduce the
size of performance bonuses for midlevel managers and eliminate the
bonuses entirely for members of the Senior Executive Service. In
addition, general staff may not be eligible to receive an additional 2
percent wage increase if these goals are not met. Throughout the year,
employees are kept aware of the agency’s progress towards achieving its
organizational outcomes and how it may affect their potential
performance pay. This is communicated through both regular updates on
ATO’s intranet and messages from the Commissioner that identify areas
where further improvement is needed in order to achieve the desired
goals.
The experience of the Family Court of Australia shows the importance of
emphasizing organizational performance when rewarding executives on
the basis of their individual performance. According to a Court
official, despite the existence of a strong shared vision in the
Court’s strategic goals and mission, the introduction of a program that
offered bonuses to senior executives of up to 10 percent of base pay
for achieving individual performance commitments had the unintended
consequence of undermining the organization’s culture of teamwork and
open communication, and distracted some executives from focusing on
organizational results. According to this official, a divisive and
unhealthy sense of competition arose among individual executives.
Primarily, this took the form of selective sharing of ideas and
information with their peers to provide them with a competitive
advantage in obtaining bonuses at the end of the year. This official
further told us that the Court found evidence suggesting that such
behavior led this group of executives to fail to appreciate their
shared responsibilities for achieving the organization’s goals. As a
result of this experience, the Court plans to no longer offer any
type of individual performance bonuses in the future.
Fostering Organizationwide Commitment to Results-Oriented Performance
Management:
A key ingredient to developing a results-oriented culture is for
organizations to empower and involve their employees. Our past work
shows two factors that play an important part: (1) top leadership that
demonstrates a real and sustained commitment to transforming the
organization’s culture and (2) employees who are constructively involved
and engaged to provide their perspectives. [Footnote 11] Agencies used
both of these factors in their efforts to foster organizationwide
commitment to results-oriented performance management. To this end, top
leaders in the United Kingdom and Canada have demonstrated their
support and commitment when establishing performance management systems
focused on results. In addition, in the United Kingdom, Canada, and New
Zealand, agencies involved stakeholders, particularly employees, to
increase acceptance of results-oriented performance management reforms.
They also consulted a wide range of stakeholders, obtained feedback
directly from employees, and engaged employee unions or associations.
Demonstrating and Sustaining Top Leadership Commitment:
The clear and sustained commitment of an agency’s top leadership to
change is perhaps the single most important element of successful
transformation and management improvement initiatives. This commitment
is most prominently shown through the personal involvement of top
leaders in developing and directing reform efforts. In the United
Kingdom and Canada, top leaders have sponsored and supported
performance management reforms that placed an emphasis on results.
Performance management reform, a key element of a broader Civil Service
Reform agenda in the United Kingdom, received direct support from the
highest levels of leadership within the civil service. In October 1999,
the head of the United Kingdom’s Home Civil Service, along with the
permanent secretaries in charge of the major government departments,
recommended the creation of a new, more results-oriented performance
management system, a revision of SCS competencies, and improved
training for managers on performance issues. A permanent secretary of
one of the major government departments formed a working group to
develop the details of the new performance management system, and
individual permanent secretaries took responsibility to drive
performance management reform forward within their respective
departments. These efforts led to a new performance management system
that was implemented governmentwide in April 2001.
In Canada, the President of the Treasury Board established the Advisory
Committee on Senior Level Retention and Compensation, whose
recommendations led to the reform of Canada’s performance management
system for all deputy ministers and executives in 1999. Other important
human capital decision makers, including the Clerk of the Privy Council—
the head of the Canadian Public Service—and the Secretary of the
Treasury Board have also identified the program as a priority.
Another way top leaders demonstrate their commitment to results-oriented
performance management systems is to personally use performance
agreements. For example, the Clerk of the Privy Council uses performance
agreements with each of the 29 deputy ministers responsible for Canada’s
federal departments as the basis on which he awards performance bonuses
of up to 25 percent of base pay. The Clerk also uses these performance
agreements as a mechanism to convey governmentwide priorities that he
has identified as being of particular importance during the upcoming
fiscal year based on the government’s agenda and the needs of the
Canadian Public Service.
Involving Stakeholders and Including Employee Perspectives:
The involvement of employees is crucial to the success of new
initiatives. Performance management systems are more effective when
employees perceive the process to be fair and the criteria to be
clearly defined, transparent, and consistently applied. We have
reported that leading organizations have found that by actively
involving employees, unions, or other employee associations when
developing results-oriented performance management systems, employee
confidence and belief in the fairness of incentive programs improves
due to an understanding of why certain employees were rewarded.
[Footnote 12] To involve stakeholders and employees when reforming
their performance management systems, agencies consulted a wide range
of stakeholders early in the process, obtained feedback directly from
employees, and engaged employee unions or associations.
Consult a Wide Range of Stakeholders Early in the Process. An important
step to ensure the success of a new performance management system is to
consult a wide range of stakeholders and to do so early in the process.
For example, for its new SCS performance management and pay system, the
United Kingdom’s Cabinet Office recognized the importance of meeting
with and including employees and stakeholders in the formation of the
new system. The Cabinet Office obtained feedback from various employee
associations, a civil servant advisory group, a project board comprised
of personnel directors, and permanent secretaries.
As part of Canada’s effort to consult stakeholders concerning its new
performance management system, the government convened an
interdepartmental committee to explore and discuss possible approaches,
consulted networks of human capital professionals and executives across
the country, and engaged top executives through the Committee of Senior
Officials, consisting of the Clerk of the Privy Council and heads of
major departments and other top officials.
Obtain Feedback Directly from Employees. Directly asking employees to
provide feedback on proposed changes in their performance management
systems encourages a direct sense of involvement and buy-in, allows
employees to express their views, and helps to validate the system to
ensure that performance measures are appropriate. For example, the
United Kingdom’s Cabinet Office provided a packet detailing proposed
reforms of the existing performance management system to approximately
3,000 members of the SCS in a large-scale effort to obtain their
feedback on the proposed changes. In addition, each department also held
consultations where individuals listened to proposed reforms. More than
1,200 executives (approximately 40 percent of the SCS) participated in
the process. The Cabinet Office then collected and incorporated these
views into the final proposal, which was adopted by the government and
implemented in April 2001.
In June 2002, New Zealand’s Department of Child, Youth, and Family
Services (CYF) and its primary union, the Public Service Association
(PSA), sought direct feedback from employees by asking them to vote on
and approve the specific measures that the department would use to
assess their individual performance. CYF and PSA first sought feedback
from employees including social workers and adoption supervisors and
will soon approach employees in clerical and policy positions. A PSA
official told us that if employees did not approve a particular set of
measures, a working group consisting of CYF and PSA representatives
would revise the measures for a subsequent vote by the employees.
Although the use of employee voting is still new, a union official told
us that he believes the technique is likely to significantly increase
employee acceptance and the validity of CYF’s performance management
system.
Engage Employee Unions or Associations. We have previously reported
that in the United States obtaining union cooperation and support can
help to achieve consensus on planned changes, avoid misunderstandings,
and assist in the expeditious resolution of problems. [Footnote 13]
Agencies in the United Kingdom, New Zealand, and Canada actively
engaged unions or employee associations when making changes to
performance management systems.
Senior officials at both the United Kingdom’s Cabinet Office and the
First Division Association, the SCS employee association, told us about
the positive working relationship that resulted from the constructive
dialogue that existed between the two groups. One technique that
facilitated this working relationship was a requirement for dialogue
and consultation in a preexisting formal agreement between the employee
association and the government. According to a senior employee
association official, this required dialogue and consultation resulted
in a more inclusive effort than had taken place in the past and held
the promise of developing a performance management system that staff
would view as fair and transparent. Cabinet Office officials have
announced their plans to engage departments and the SCS employee
association over the coming months as part of a formal evaluation of
the pay decisions under the new performance management system.
In New Zealand, an agreement between government and the primary public
service union created a “Partnership for Quality” framework that
provides for ongoing, mutual consultation on issues such as performance
management. Specifically, CYF and PSA entered into a joint partnership
agreement that emphasizes the importance of mutual consideration of each
other’s organizational needs and constraints. For example, two of the
objectives stated in the 2001–2002 partnership agreement are to (1)
develop the parties’ understanding of each other’s business and (2)
equip managers, delegates, and members with the knowledge and skills
required to build a partnership for a quality relationship in the
workplace. Department and union officials told us that this framework
has considerably improved how both parties approach potentially
contentious issues, such as employee performance management. Also
included in the partnership agreement are measures to evaluate the
success of the relationship such as (1) sharing ownership of issues,
plans, and outcomes and (2) quickly resolving issues in a solution-
focused way, with a reduction in grievances.
The government of Canada repeatedly consulted with APEX, the executive
professional association, about its proposed reforms to the executive
performance management system and accompanying pay-at-risk provisions.
This dialogue began prior to the system’s rollout and continued through
initial implementation during which APEX was actively involved in
collecting feedback from executives as well as making recommendations.
For example, as part of an assessment of PMP based on consultations
APEX had with its membership after the first year of the program, APEX
identified several issues needing further attention including the need
to provide executives with additional guidance on how to develop their
individual performance agreements, particularly with regard to
identifying and selecting different types of performance commitments.
This recommendation and others were shared with the government and the
official PMP guidance issued the following year incorporated these
concerns.
Concluding Observations:
As governments both in the United States and around the world continue
to place a greater emphasis on achieving organizational results, there
is a growing recognition of the importance of fostering a results-
oriented culture among employees in order to accomplish this. The
experiences of Australia, Canada, New Zealand, and the United Kingdom
provide insights into how other countries are using performance
agreements, competencies, and performance pay in their individual
performance management systems to connect employee performance with
agency results, and to recognize and reward employees for focusing on
achieving results. As these governments began to use their performance
management systems to help achieve their organizational goals, they
worked to foster an organizationwide commitment to these systems.
While each government’s and agency’s performance management system
reflects its specific organizational structure, culture, and
priorities, their experiences provide a useful point of reference as
U.S. agencies examine their own performance management systems and
consider how to more closely link the performance of their employees to
the results the American people expect.
Agency Comments:
We provided drafts of the relevant sections of this report to cognizant
officials from the central agency responsible for human capital issues,
individual agencies, and the national audit office for each of the
countries we reviewed. They generally agreed with the contents of this
report. We made minor technical clarifications where appropriate.
Because we did not evaluate the policies or operations of any U.S.
federal agency in this report, we did not seek comments from any
agency. However, because of OPM’s governmentwide responsibility for
performance management in the federal government, we provided a draft
of this report to the Director of OPM for her information.
We are sending copies of this report to other interested congressional
committees, the directors of OPM and OMB, and the foreign government
officials contacted for this report. We also will make copies available
to others upon request. In addition, the report will be available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you have any questions concerning this report, please contact me or
Lisa Shames on (202) 512-6806. The major contributor to this report was
Peter J. Del Toro; Leslie Carsman, Jerome Nagy, and Leah Querimit Nash
also made key contributions.
Signed by:
J. Christopher Mihm:
Director, Strategic Issues:
[End of section]
Appendix I: Objective, Scope, and Methodology:
To meet our objective to describe how other countries have begun to use
individual performance management systems to help them achieve
organizational results, we selected Australia, Canada, New Zealand, and
the United Kingdom based on our earlier work examining their
implementation of results-oriented management reforms. [Footnote 14] We
reviewed the public management literature including general surveys of
human capital management practices and reforms conducted by the
Organisation for Economic Co-operation and Development (OECD) and
academics both in the United States and abroad. We also reviewed
country profiles of human capital and performance management practices
in specific countries and spoke with public management experts to
provide additional context and analysis. Based on this research, we
decided to include the government of the Canadian Province of Ontario
in this review.
We analyzed policies, guidance, training, and other materials on
performance management systems for agencies in these countries along
with government-sponsored evaluations of these systems when available.
We also visited Australia, Canada, New Zealand, and the United Kingdom
to interview officials from each country’s government. To obtain a
variety of perspectives, we spoke to officials from the countries’
national audit offices; central management and human capital agencies;
agencies responsible for a range of functions including policy
development, regulation, and service delivery; representatives of
employee associations; and academics.
We identified the examples described in this report through evaluations
by and discussions with officials from central human capital agencies or
national audit offices. We did not independently evaluate the
effectiveness of the performance management systems used in the four
countries. We also did not attempt to assess the prevalence of the
practices or challenges we cite either within or across the four
countries. Therefore, agencies other than those cited for a particular
practice may, or may not, be engaged in the same practice. We use the
term “agency” generically to refer to entities such as departments,
ministries, and line agencies, except in describing specific examples
where we use the term appropriate to that case.
We conducted our work from April 2001 through June 2002 in Washington,
D.C., and the four countries in accordance with generally accepted
government auditing standards. We provided drafts of the relevant
sections of this report to officials from the central agencies
responsible for human capital issues, the individual agencies, and the
national audit office for each of the countries we reviewed. We also
provided a draft of this report to the Director of OPM for her
information.
[End of section]
Appendix II: Key Human Capital Decision Makers in Australia:
The government of Australia employed about 118,600 public servants in 18
major departments and 81 agencies as of June 2001.
Key Human Capital Decision Makers in the Australian Public Service:
Australian Public Service Commission (APSC). APSC is the key central
government organization responsible for human capital management issues
in the Australian Public Service. APSC is responsible for fostering a
high performing public service by promoting high-quality human capital
management, but does not promulgate prescriptive rules. For example,
APSC developed a principles-based management framework that consists of
a statement of Australian Public Service values as well as a code of
conduct that all agency heads are to promote and uphold. APSC supports
this framework by issuing guidance to agencies on the application of
these principles. The APSC also provides a variety of training and other
support services to agencies but does not intervene in the daily human
capital management that takes place within the agencies. APSC also
provides and facilitates training and development for members of the
Senior Executive Service, and has established a leadership capability
framework that agencies use to select senior executives and, in some
agencies, evaluate their individual performance. In addition, APSC is
responsible for evaluating and reporting on the government’s overall
performance and numerous human capital issues, including recruitment,
retention, leadership, performance management, and workforce planning.
Department of Employment and Workplace Relations (DEWR). DEWR plays a
key role in helping departments and agencies develop workplace
relations arrangements that are consistent with the government's
objective of building a high-performing public sector. Since 1997,
responsibility for setting pay and conditions of employment has been
devolved to individual agencies, with nearly all public sector employees
now covered by either collective certified agreements or individual
Australian workplace agreements in accordance with the Workplace
Relations Act of 1996. As a central part of its work, DEWR reviews and
assesses agencies’ certified agreements for their consistency with
government policy requirements. Certified agreements set out the terms
of employment agreed to by agencies and employees including issues such
as employee leave, salary and wage increases, performance pay, and
working conditions. Generally, individual Australian workplace
agreements are agreed to by agencies and senior executives; DEWR
highlights the potential benefits of these agreements. DEWR also
provides support, advice, training, and consultancy services to
agencies to promote effective agreement making across the Australian
Public Service.
Individual Departments and Agencies. The Public Service Act of 1999
devolved almost all human capital management responsibilities to
individual departments and agencies. Individual chief executives have
wide discretion in how they structure and operate their organizations in
order to achieve certain performance goals, which are specified in
performance agreements with the government. The legislation grants chief
executives all rights, duties, and powers of an employer, and they may
negotiate compensation with individuals or groups of employees. In
Australia, government staff are typically employed under the terms of a
collective certified agreement or individual Australian workplace
agreements. Both of these agreements allow flexibility to the employees
and the chief executive of the department or agency when determining
salary, performance bonuses, annual leave, and other terms of
employment.
Sources for Additional Information:
For additional information on the Australian departments and agencies
discussed in this report, Australia’s key human capital decision
makers, and the Australian National Audit Office’s work on this topic,
please see the following sources:
* Australian Public Service Commission (APSC);
[hyperlink, http://www.apsc.gov.au].
* Australian Taxation Office (ATO);
[hyperlink, http://www.ato.gov.au].
* Department of Employment and Workplace Relations (DEWR);
[hyperlink, http://www.dewr.gov.au].
* Family Court of Australia;
[hyperlink, http://www.familycourt.gov.au].
* Centrelink;
[hyperlink, http://www.centrelink.gov.au].
* Australian National Audit Office (ANAO);
[hyperlink, http://www.anao.gov.au].
[End of section]
Appendix III: Key Human Capital Decision Makers in Canada and Ontario:
The federal government of Canada employed about 155,000 public servants
working in 29 major departments and 60 agencies as of March 2001. The
Ontario Public Service employed about 64,600 public servants in 20
ministries as of June 2002.
Key Human Capital Decision Makers in the Canadian Public Service:
Three agencies are primarily responsible for central human capital
management in the Canadian Public Service: (1) the Privy Council Office,
(2) the Treasury Board of Canada Secretariat, and (3) the Public Service
Commission.
Privy Council Office. The Privy Council Office plays a key leadership
role in setting the strategic direction for Canada’s management of its
human capital. It is responsible for the overall effectiveness of the
public service, its competent and efficient administration, and
ensuring the strategic management of Canada’s senior public service.
The Clerk of the Privy Council, the head of the Privy Council Office
and the functional head of Canada's civil service, is responsible for
its day-to-day management and provides policy advice to the Prime
Minister on human capital issues. The Clerk is supported by the
Committee of Senior Officials, which provides him or her with advice on
various management and human capital issues.The Committee consists of
senior deputy ministers in charge of major departments, the Secretary
of Treasury Board Secretariat, and the President of the Public Service
Commission. The Privy Council Office is also specifically responsible
for the strategic management of top executives and administers Canada's
Performance Management Program for deputy ministers. It also provides
advice and support for the (1) selection of deputy ministers and other
appointees, (2) the related processes for performance review,
compensation, and termination, and (3) career planning for deputy
ministers.
Treasury Board of Canada Secretariat. The Treasury Board of Canada
Secretariat supports the cabinet-level Treasury Board in its role as the
employer and general manager of the public service. It recommends and
provides advice to the Treasury Board on policies, directives,
regulations, and program expenditure proposals with respect to the
management of the government’s human capital, on topics such as
employment equity, official languages, and employer-relations in the
public service. The Treasury Board of Canada Secretariat is also
responsible for collective bargaining and employees’ entitlements and
administers Canada’s Performance Management Program for executives.
Public Service Commission. The Public Service Commission is responsible
for the recruitment, selection, and appointment of qualified
individuals to the public service, and for providing impartial recourse
for challenging appointments and for employee resourcing-related
complaints. The Commission reports directly to Parliament to ensure the
competence, diversity, and nonpartisanship of the public service. It is
also responsible for ensuring that staffing in the public service is
based on merit and fairness and is without discrimination, but the
Commission delegates many of its staffing responsibilities to
individual departments and agencies except in the area of recourse. Its
three commissioners are appointed to 10-year terms and are responsible
for ensuring the fulfillment of the Commission’s mandate and
responsibilities.
Individual Departments and Agencies. While departments and agencies are
primarily responsible for implementing policies developed by central
agencies such as the Treasury Board of Canada Secretariat and the
Public Service Commission, they have management responsibilities in
areas such as recruiting, deployment, and promotion.
Key Human Capital Decision Makers in the Ontario Public Service:
Three agencies and one committee are primarily responsible for human
capital management in the Ontario Public Service (OPS): (1) the Civil
Service Commission, (2) the Cabinet Office, (3) the Management Board
Secretariat, and (4) the Executive Development Committee.
Civil Service Commission. The Civil Service Commission monitors the
government’s performance as an employer particularly with regard to the
promotion of merit principles and OPS values. The Commission
promulgates regulations on a wide range of human capital issues,
including salaries, classifications, recruitment, and benefits. It also
approves appointments to the senior levels of the OPS.
Cabinet Office. The Cabinet Office provides advice and analysis to the
Premier, the political leader of the Ontario provincial government. The
Cabinet Office oversees the OPS to improve its effectiveness,
efficiency, and organization. The Cabinet Office also works with the
Premier’s Office to develop proposals for the government’s strategic
policy priorities and to devise the legislative agenda. The Cabinet
Office communicates with the other central agencies to ensure that the
government’s strategic policy and legislative agenda are integrated
with planning processes and fiscal and resource issues. The Centre for
Leadership, housed within the Cabinet Office, is responsible for
managing an integrated human capital plan for OPS executives including
the performance management program.
Management Board Secretariat (MBS). MBS manages the Ontario
government’s financial, human, physical, and technological assets and
resources and provides strategic advice to the Management Board, a
cabinet committee responsible for determining how the government
operates and manages the public service. MBS is the official employer of
the OPS and sets management policies, guidelines, and accountability
frameworks; manages the grievance process; and administers the
compensation program for executives and managers. MBS is also
responsible for coordinating the performance management system for
levels below the executive level.
Executive Development Committee. The Executive Development Committee
manages the development of policies and practices for senior executives
in the OPS as well as their recruitment, succession planning,
education, training and development, and performance management. The
Committee was established in 1986 to provide leadership in human capital
planning and is comprised of seven senior deputy ministers and chaired
by the Secretary of Cabinet.
Individual Departments and Agencies. Ministries are responsible for
implementing policies developed by central agencies such as the Cabinet
Office and MBS in matters such as pay and remuneration, performance
management, and strategic human capital planning and succession
planning. Ministry chief executives have greater autonomy in areas such
as recruiting and training and development.
Sources for Additional Information:
For additional information on the departments and agencies from Canada
and Ontario discussed in this report, key human capital decision makers,
and the Canadian and Ontario central audit offices’ work on this topic,
please see the following sources:
Government of Canada:
Privy Council Office;
[hyperlink, http://www.pco-bcp.gc.ca].
Treasury Board of Canada Secretariat;
[hyperlink, http://www.tbs-sct.gc.ca].
Public Service Commission;
[hyperlink, http://www.psc-cfp.gc.ca].
Agriculture and Agri-Food Canada (AAFC);
[hyperlink, http://www.agr.gc.ca].
Industry Canada;
[hyperlink, http://www.ic.gc.ca].
Office of the Auditor General of Canada;
[hyperlink, http://www.oag-bvg.gc.ca].
Province of Ontario:
Civil Service Commission;
[hyperlink, http://www.gov.on.ca/MBS/english/mbs/civilplan.html].
Management Board Secretariat (MBS);
[hyperlink, http://www.gov.on.ca/MBS/english/mbs].
Office of the Provincial Auditor of Ontario;
[hyperlink, http://www.gov.on.ca/opa].
[End of section]
Appendix IV: Key Human Capital Decision Makers in New Zealand:
The government of New Zealand employed about 30,400 public servants
among its 36 departments and other agencies as of June 2001.
Key Human Capital Decision Makers in the New Zealand Public Service:
State Services Commission. The State Services Commission is the central
human capital management agency for the public service. Under the State
Sector Act of 1988, the Commission is responsible for promoting,
developing, and monitoring human capital management within each
department and providing advice on training and developing staff. For
example, it issues reports identifying key human capital challenges
facing the New Zealand Public Service, which are used to facilitate
discussion on specific issues and advice to government. The Commission
determines whether the state sector has the human capital, information
resources, and management structures to deliver the government's
objectives. The State Services Commissioner is responsible for
appointing the chief executives of departments and determines their
remuneration and reviews their performance. Each chief executive enters
into a performance agreement with the minister for his or her
Department, which outlines specific performance commitments and serves
as the basis of his or her evaluation at the end of the year. The State
Services Commission has developed a set of leadership competencies to
assist in recruiting, developing, and retaining chief executives as
part of a larger management framework.
Individual Departments and Agencies. The State Sector Act of 1988
devolved almost all human capital management decision making to
individual departments and agencies and their chief executives.
Individual chief executives are given broad discretion to develop and
implement their own human capital policies and practices to meet the
specific needs of their organizations and employees.
Sources for Additional Information:
For additional information on the New Zealand departments and agencies
discussed in this report, the key human capital decision makers, and the
New Zealand central audit office’s work on this topic, see the following
sources:
State Services Commission;
[hyperlink, http://www.ssc.govt.nz].
Department of Child, Youth, and Family Services (CYF);
[hyperlink, http://www.cyf.govt.nz].
Inland Revenue Department (IRD);
[hyperlink, http://www.ird.govt.nz].
Office of the Controller and Auditor General;
[hyperlink, http://www.oag.govt.nz].
[End of section]
Appendix V: Key Human Capital Decision Makers in the United Kingdom:
The government of the United Kingdom employed about 489,800 public
servants working in 17 major departments and 92 executive agencies
affiliated with those departments as of October 2001. [Footnote 15]
Key Human Capital Decision Makers in the United Kingdom Public Service:
The Cabinet Office. The Cabinet Office provides central guidance and
serves as the major human capital player in the government of the United
Kingdom, and is responsible for developing and implementing the central
government’s human capital policies. The Cabinet Office divides its work
into a number of policy areas, including recruiting, training,
developing, and paying employees. The Cabinet manages the Senior Civil
Service (SCS) and specifically oversees senior management pay and
performance, executive-level recruitment, and succession planning. The
Cabinet Office also serves as the primary mechanism for relaying
central human capital policy to departments and executive agencies. In
the area of recruitment and appointment to senior positions, the
Cabinet Office shares oversight and coordination with the Office of
Civil Service Commissioners.
Individual Departments and Agencies. The Civil Service Management Code,
which defines the relationship between the central government and
individual government departments and executive agencies, delegates
considerable responsibility to departments and executive agencies in
determining human capital needs. With guidance from the central
government, departments and executive agencies handle daily human
capital management functions, including recruitment, the number and
grading of posts, classification of staff, remuneration, allowances,
expenses, work arrangements, performance and promotion, and retirement
age for positions below the SCS.
Sources for Additional Information:
For additional information on key human capital decision makers and the
National Audit Office’s work on this topic, see the following sources:
The Cabinet Office;
[hyperlink, http://www.cabinet-office.gov.uk].
Office of Civil Service Commissioners;
[hyperlink, http://www.cabinet-office.gov.uk/ocsc/index.htm].
National Audit Office;
[hyperlink, http://www.nao.gov.uk].
[End of section]
Footnotes:
[1] U.S. General Accounting Office, High-Risk Series: An Update, GAO-01-
263 (Washington, D.C.: January 2001).
[2] U.S. General Accounting Office, A Model of Strategic Human Capital
Management, GAO-02-373SP (Washington, D.C.: Mar. 15, 2002).
[3] U.S. General Accounting Office, Managing for Results: Using
Strategic Human Capital Management to Drive Transformational Change,
GAO-02-940T (Washington, D.C.: July 15, 2002).
[4] Organisation for Economic Co-operation and Development, Programme
and Country Reports, Governing for Performance: OECD/Germany High-level
Symposium (Paris: Feb. 27, 2002); Recent Developments and Future
Challenges in Human Resource Management in OECD Member Countries:
Background Paper (Paris: June 29, 2000); Performance Pay Schemes for
Public Sector Managers: An Evaluation of the Impacts, Public Management
Occasional Papers, No. 15 (Paris: 1997); and Private Pay for Public
Work: Performance-Related Pay for Public Sector Managers (Paris: 1993).
Information on these and other OECD reports on human capital and
performance management is available at [hyperlink,
http://www.oecd.org].
[5] Individual U.S. agencies are responsible for determining which of
its Senior Executive Service employees will receive performance bonuses
and the amounts. Bonuses can range from 5 to 20 percent of the
individual executive’s base pay.
[6] Most recently, see U.S. General Accounting Office, Human Capital:
Practices that Empowered and Involved Employees, GAO-01-1070
(Washington, D.C.: Sept. 14, 2001).
[7] U.S. General Accounting Office, Managing for Results: Emerging
Benefits From Selected Agencies’ Use of Performance Agreements, GAO-01-
115 (Washington, D.C.: Oct. 30, 2000).
[8] GAO-01-115.
[9] The precise mix and weight is based on considerations such as job
requirements and specific agency initiatives that place a greater
emphasis on a particular competency, such as customer service. The
system permits flexibility provided that the mix and weighting for each
employee adhere to the ranges set by the department and are clearly
articulated, consistently applied, and transparent.
[10] U.S. General Accounting Office, Human Capital: Using Incentives to
Motivate and Reward High Performance, GAO/T-GGD-00-118 (Washington,
D.C.: May 2, 2000).
[11] GAO-01-1070 and U.S. General Accounting Office, Management Reform:
Elements of Successful Improvement Initiatives, GAO/T-GGD-00-26
(Washington, D.C.: Oct. 15, 1999).
[12] GAO-02-373SP and GAO/T-GGD-00-118.
[13] GAO-01-1070.
[14] U.S. General Accounting Office, Managing for Results: Experiences
Abroad Suggest Insights for Federal Management Reforms, GAO/GGD-95-120
(Washington, D.C.: May 2, 1995).
[15] These figures exclude employees and departments and agencies in
the devolved governments of Scotland and Northern Ireland.
[End of section]
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